Sebi, RBI on watch for illicit Swiss money returning home

Financial regulators Sebi and RBI have enhanced vigil on Indian entities routing their funds from secretly-held Swiss bank accounts to India through Dubai and other locations, on fears of getting exposed for stashing the money in the European nation.

The stepped-up vigil for money laundering activities by the country's two financial regulators comes in the midst of suspicion that there could be some Indian entities in the list of over 2,000 Swiss bank accounts that are expected to be disclosed soon by whistle-blower website Wikileaks.

While banks in the Middle East have seen a sudden spurt in their deposits in past few months, queries mailed to Swiss Bankers Association remained unanswered on whether the banks there have seen a rise in withdrawals.

It is feared that the Indian entities having accounts in Swiss banks might move their funds to Middle East and other locations and then route them back to India, either into the stock market through FIIs or the FDI route.

While Sebi is responsible for oversight on funds flowing into or out of capital markets, RBI approval is needed for FDI (Foreign Direct Investment) inflows for many sectors. Besides, RBI also monitors flow of overseas funds into stock market through foreign or overseas banks.

Sources said that Sebi and RBI are taking a pre-emptive stance to guard against any possible flow of illicit money to the country and would broaden the scope of their oversight by indulging other institutions such as banks and brokers, only after firm indications of such capital flows.

The sectors suspected to be vulnerable for such funds could be real estate, agriculture and infrastructure, which are among the 'sunrise' segments of the Indian economy and have large-scale fund requirements, they added.

Sources said that all the funds held by Indian entities in Swiss banks might not necessarily be illicit wealth, but include genuine funds that are not willing to take a chance given the negative publicity generally associated with Swiss banks.

The issue of money lying in Swiss banks has become a matter of intense debate in India, with opposition parties and even the courts asking the government to take concrete action against those having stashed black money overseas.

Besides the expected Wikileaks expose, there are also fears that revised tax treaties that India is working on with various countries including Switzerland might lead to some stern action against the tax offenders in the country.

However, the government might not make public the names of entities it gets through the information exchange mechanism of these treaties, as this might lead to breach of the treaty and also hinder the enforcement actions.